Steel Products Prices North America

Methodologies & Other Factors Affecting Price Indices

Written by John Packard


Written by John Packard, President & CEO, Steel Market Update

When I was selling steel for a domestic mill (Winner Steel, now called NLMK Sharon), there was always cause for concern when steel buyers would contact me and reference a price from a trade publication that I knew to be “out of date” with the reality of the market. On one occasion, I reached out to a long-standing publication and asked how they got their galvanized index number. Their response was to ask me where I saw the market spot price to be, and the next day that was the number the publication referenced as “the” number for the marketplace. I knew then there had to be a better way to collect data. Early on (while still at the steel mill), I became a supporter of the CRU indices, which have a basis in truth since they use only transaction pricing.

That was more than 10 years ago. Today, the market has gotten heavily laden with indexes trying to take the shine off the CRU product.

Steel Market Update noticed a wide spread in hot rolled coil price averages this past week. Since it has been a few years since we last looked at the various indexes and reviewed their methodologies, we thought it would be prudent to do so now. Especially after the recent acquisition of SMU by the CRU Group.

Last week, we heard of the following numbers on benchmark hot rolled coil:

• CRU = $884

• Platts = $878

• Argus = $874

• SMU = $865

• AMM = $854

• Flack Dashboard = $875

The devil is in the details, and the details will create an opportunity for the greater steel market to debate what is truly “the market” and how will it be determined in the future. We have our own opinions, but will save them for the end. First, let’s take an unbiased look at the facts behind each index.

CRU Index: The Standard Bearer

CRU has been the accepted standard for hot rolled, cold rolled, galvanized and plate for many years. The key to understanding where CRU pricing comes from is to review their “U.S. Midwest Flat Products Methodology,” which defines spot market pricing as coming from “actual spot market transactions” from all market segments (steel mills, service centers, traders and end users). The pricing data is collected during the “data submission window,” which opens the Friday before publication and closes on the Monday prior to publication (U.S. HRC numbers are published on Wednesday mornings). The CRU price represents the weighted volume average of actual transactions between Midwest mills and buyers, where Midwest mill is defined as East of the Rockies. 

CRU data providers use the CRU Price Collection Platform, which is hosted at www.cruindices.com. Individual submissions are checked against prior data submissions from that data provider, and submissions outside of a specific percentage range are flagged and reviewed. Volumes are also compared against the average of all the submissions made by a data provider, and anything unusual is flagged for further verification.

CRU analysts set ranges as to where they expect prices to fall during any specific data collection window. In addition, consideration is given to market liquidity and the number of data points expected based on current market liquidity levels.

Final price determination is not made until all outliers are referred back to the CPCP Administrator for clarification. Prices submitted more than $5-$10 per ton outside the range, or if the data provider has not provided information recently, are checked by the Administrator.

The maximum weight given to any price submission is 30 percent, unless there are three or fewer admissible price points. In this case, equal weight is given to each price point.

CRU benchmark prices are produced at 9:00 a.m. Eastern Time on Wednesday.

CRU is investigating the viability of a daily HRC index and will be reporting back on their findings soon.

SMU Index: Bids, Asks and Transactions

From its inception, the Steel Market Update index was never intended for use in determining contracts or for use in financial instruments. The SMU index is based on direct personal contact with a large group of steel buyers located within the United States. We collect information from service centers, wholesalers, end-users, pipe and tube manufacturers and steel mills. The index is collected, analyzed and managed by SMU President & CEO John Packard who prior to starting the SMU index had 31 years of active steel buying and selling experience in North America.

On Monday and Tuesday of any given week, SMU will reach out to steel buyers to procure what they are being offered by domestic (U.S. and Canadian) steel mills for new orders to be produced over normal lead times. Twice per month, SMU will complement our one-on-one contacts with a survey that is currently sent to 640 data providers.

We develop a range of responses, as well as what the trend is from week to week, during the current week’s collection of data. Our index is the average of the low and high responses accepted for that week. For example, if our range for HRC is $820-$890 per ton, our average is $820+$890 divided by 2 = $855. We do not weight specific data points, rather we consider whether the volume of responses is pointing toward prices moving higher or lower and that becomes our SMU Price Momentum Indicator view.

If we find we are getting “unusual” data points (higher or lower than normal), we will reach out to our domestic mill contacts to verify that the information being collected is accurate.

The SMU F.O.B. point is domestic mill east of the Rockies. This means we take into consideration price points from mills located in the South, Southeast, East and Midwest. SMU price indices are published on Tuesday evenings in our Executive level newsletter and on our website. Should there be times when prices are moving quickly in one direction or another, we reserve the right to publish new pricing as the week progresses so we can provide a fair assessment of the market at any point in time.

SMU does not consider slab rollings out of domestic production facilities unless the supplier has a track record of consistency of supply and support of their customers (example: NLMK USA is considered to be a consistent source of flat rolled even though a large portion of their substrate comes from slabs and not their own melt). Once a supplier (such as JSW Ohio) proves they are going to be a consistent and viable supplier, we will add them into our collection mix. We are not considering traders who are toll processing foreign slabs through a domestic mill (example: AK Steel tolling foreign slabs for a trading company). We report on these developments separate from our index.

Platts Index: Transactions Plus Offers/Bids

In May of this year, Platts combined The Steel Index (SBB) into one data point with one methodology.

Buyers and sellers of steel report to Platts:

• Confirmed transactions

• Firm bids that are open to the marketplace as a whole, with standard terms.

• Firm offers that are open to the marketplace as a whole, with standard terms.

• Expressions of interest to trade with published bids and offers, with standard terms.

• Indicative values, clearly described as such.

• Reported transactional activity heard across the market, clearly described as such.

• Other data that may be relevant to Platts assessments.

Platts states in their methodology that, “Information may be published in real-time on Platts information service, Platts Metals Alert. Platts publishes information received so that it can be fully tested by the market at large. Information collected and published may include the identities of buyers and sellers, branded material, confirmed prices, volumes, locations, and stated trading terms.”

Unlike CRU, Platts does not have confidentiality agreements for use in its steel price assessments.

Platts price assessments are published at 3:30 p.m. Pittsburgh time (Eastern Time).

Platts reports that their prices go through a “normalization” process. “By surveying markets and observing the economic impact of variance from the base standard reflected in Platts assessments, Platts regularly normalizes disparate information from the diverse physical commodity markets back to the standard reflected in Platts price assessments. This is done by analyzing freight rates (for locational differences), quality differentials (for quality differences), the movements of all markets through time (for time differences) and other differentials associated with the size of trades and delivery terms.”

Platts HRC U.S. price is EXW Indiana and is priced in dollars per short ton (net ton).

American Metal Market: Tonnage-Weighted Calculation of Transactional Data

For this article, SMU is referencing the August 2018 methodologies by the American Metal Market for the publication of their hot rolled coil index.

AMM publishes their HRC index on a weekly basis every Thursday at 5 p.m. Eastern Time, unless there’s a public holiday, in which case it is published the following day. They have advised SMU of their intention to go to a daily index in October, pending a public consultation.

The pricing point is F.O.B. Midwest mill and is noted in U.S. dollars per hundred weight (cwt). Minimum tonnage required is 50 tons.

The index methodology is a tonnage-weighted calculation of transactional data, which come from three sub-indexes, one for producers (mills), one for consumers and one for traders (distributors), based on information received from all sides of the market. The three indexes are then combined with equal weighting to ensure that the market is fairly represented across all participants. All the input data that may vary by more than 10 percent from the preliminary index figure will be excluded and the index recalculated. The published index figure is the straight average of the three sub-indices.

According to the AMM methodology, “The number of trades available for use in the indexes does vary depending on the market conditions prevailing. The index calculation methodology does not set any minimum number, or threshold, of transactions to be gathered on which to base the index.”

Data is submitted by phone and email survey. All data is kept confidential.

Argus Methodologies

Argus has not been known to be a leader in steel indices. However, we understand they are making an effort to become recognized in the market. Upon my initial review, I was not able to glean enough information on their methodologies to make any comments valuable to our readers.

SMU will contact Argus this week to see what we can learn and will revisit the subject once we have something concrete to share.

Flack Dashboard

SMU checked the Flack Global Metals website dashboard (registration required) and found their most recent HRC data point to be $870 per ton (down $5 per ton from earlier in the week) and a note that it was adjusted two days ago (we are assuming that to mean either Wednesday or Thursday of last week).

We have reached out to Flack Global Metals to see if we can get more information on how they determine the HRC number referenced on their dashboard.

For those unaware of Flack Global Metals, they are a service center that works with customers supplying steel and discussing/using risk management tools. David Feldstein, who is the Corporate Risk Manager for Flack, is also one of SMU’s writers of our Thursday Futures articles in our Executive newsletter.

SMU Observations, Comments and Opinions

The following is the opinion of Steel Market Update and should be taken as such.

Since we have been collecting pricing data on an almost daily basis over the past 10 years, SMU understands the complexity of gathering a representative sample, the difficulty in finding actual spot transactions during a particular week (especially with so many companies tied to contract pricing) and finding repetitive pricing with enough data points to feel comfortable producing our price spread and then an index (average) for the product. We are constantly vetting companies and asking questions about transactions, suppliers, the timeliness of the numbers, F.O.B. points and other considerations that impact spot numbers.

My opinion is the strength of our SMU numbers is related to the vetting of data providers, the quality of the information provided and the size of the market pool we have to pull from.

I want to point out that CRU and Platts have been very open and transparent with SMU both during this analysis as well as in the past. They both have been willing to provide answers to questions we might have and, I believe, understand and appreciate the SMU position as an independent information provider to the market.

Even with the purchase of SMU by the CRU Group, we continue to be an independent provider of information to the market. I have made a conscious choice not to know what CRU is reporting on any given week. We both work independently of each other, and that is one of the strengths of our relationship.

Steel Market Update is supportive of the CRU indices (or we would not have sold our company to them). Even so, it is important that steel buyers are aware of the differences between “transaction” based indices and those who rely on anecdotal collection techniques and do not require actual purchase orders or order acknowledgements.

We believe it is also important to look at the totality of the index, the products covered, for how long and the reputation built as an accurate source of market pricing.

It has always been the opinion of Steel Market Update that buyers and sellers of steel should be students of the market and not rely upon a single data source. Because of our unique ability to see into the CRU and SMU collection techniques, we are very comfortable in recommending each to our readers and to the market. Both have been tested over time.

We recommend that you take the time to review the methodologies for each index and to ask questions of them. There are differences, and it is important to work with the indexes that best meet your company needs.

John Packard, President & CEO, Steel Market Update

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